Foreign Account Tax Compliance Act (FATCA)

Foreign Account Tax Compliance Act (FATCA)

Do I need to report my foreign financial assets to the IRS?

In 2010, Congress enacted FATCA, which requires US taxpayers, whether living abroad or in the US, who own specified foreign financial assets and meet the filing thresholds, to report the fair market value of the specified foreign financial assets on an annual basis.

How will the IRS know that I have specified foreign financial assets?

FATCA also requires foreign financial institutions, such as banks, insurance companies, mutual funds, and broker/dealers to report certain information about financial accounts held by US taxpayers, or by foreign entities in which the US taxpayers hold a substantial ownership interest. Foreign financial institutions must comply with the FATCA reporting requirements or be subject to a 30% withholding tax on their US sourced payments. The 30% withholding tax has resulted in most foreign financial institutions agreeing to comply with the reporting requirements. The IRS will be able to use the information obtained from the foreign financial institutions to ensure US taxpayers are disclosing their foreign financial assets.

How does a US Taxpayer comply with their FATCA reporting obligations?

A US taxpayer reports their foreign financial assets on Form 8938 which is submitted with the US taxpayer’s income tax return.

What are the filing thresholds triggering a FATCA reporting obligation?

Taxpayers residing in the US.

For individuals the filing threshold is specified foreign financial assets of more than $50,000 on the last day of the tax year or $75,000 at anytime during the tax year. For married taxpayers the filing threshold is specified foreign financial assets of more than $100,000 on the last day of the tax year or $150,000 at any time during the tax year.

Taxpayers residing outside the US.

For individuals the filing threshold is specified foreign financial assets of more than $200,000 on the last day of the tax year or $300,000 at anytime during the tax year. For married taxpayers the filing threshold is specified foreign financial assets of more than $400,000 on the last day of the tax year or $600,000 at any time during the tax year.

What are specified foreign financial assets?

Specified foreign financial assets include financial accounts maintained by a foreign financial institution and other foreign financial assets held for investment if they are not held at a foreign financial institution. Other foreign financial assets include stocks or securities issued by a non-US person, any interest in a foreign entity, and any financial instrument or contract that has a non-US person issuer or counterparty.